Conventional versus Unconventional Oil & Gas: Like Picking Apples from the Tree

March 23rd, 2009 by

By Pat Hinds

Recently while on a sales trip to Fort McMurray, I was having breakfast with a salesperson who sells gate values to the heavy oil industry.  We were talking about the oil & gas industry in Alberta, and more specifically, about how unconventional oil and gas was impacting our business.  In the conversation the salesperson used an analogy that unconventional oil and gas industry is like picking apples from a tree. When an apple picker comes to an apple tree he is able to stand on the ground and reach up to pick apples; when he is done picking the low hanging apples he has to step on a bucket to pick the next round of apples; then he uses a ladder and finally, he needs a truck with a picker to reach the apples at the top of the tree.  Each stage is less efficient than the previous, taking longer and costing more to harvest.

The same phenomenon is happening today with oil and gas production in the Western Sedimentary Basin. Fifty years ago, the first producers could put a hole in the ground and the pressure of it would bring the oil and gas to the surface making it very cheap to produce – this would be considered conventional.  This is the case in the Middle East today; the oil comes to the surface requiring minimum infrastructure. As a result, the cost of production there is much less than it is here in Canada.  As the oil and gas industry has matured, oil and gas producers have had to leverage technology, including enhanced oil recovery, mining heavy oil, tight gas, and shale gas and coal bed methane exploration.  All of these technologies have proven to be effective in getting access to the commodities, but they come at an increased expense— just like the apples at the top of the tree.

The good news part of the story is that the unconventional is creating opportunities in Alberta for engineering companies, manufacturers, electricians, and construction companies as well as drilling and completion companies that are adopting new technology.  Sticking with the apple picker analogy, if as a salesperson all you sold were buckets to the apple farmer your market opportunity would be limited.  It is much better for a salesperson to sell buckets, ladders, trucks and hydraulic pickers.  The challenge for the consumer is the cost of the apple has gone up due to the increased cost of production. 

If you are targeting the oil and gas sector today you need to ensure your products and services are aligned with the unconventional exploration and production as well as the servicing needs of the existing conventional market.  The two tables below this post on the western Canada oil and gas market may be of use to you!

Topics: Sales Consulting